Reviewing The Importance Of Financial Literacy Finance Essay

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Financial literacy is the ability to understand finance. More specifically, it refers to the set of skills and knowledge that allow an individual to make informed and effective decisions through their understanding of finances.[1] By contrast, raising interest in personal finance is now a focus of state-run programs in countries including Australia, Japan, the United Statesand the UK.[2] Personal finance is to financial literacy what being able to read one’s own handwriting is to literacy. The Organization for Economic Co-operation and Development (OECD) started an inter-governmental project in 2003 with the objective of providing ways to improve financial education and literacy standards through the development of common financial literacy principles.

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In March 2008, the OECD launched the International Gateway for Financial Education, which serves as a clearinghouse for financial education programs, information and research worldwide. In the UK, the alternative term “financial capability” is used by the state and its agencies: theFinancial Services Authority (FSA) in the UK started a national strategy on financial capability in 2003. The US Government also established its Financial Literacy and Education Commission in 2003. Today’s complex financial services market offers consumers a vast array of products and providers to meet their financial needs. This degree of choice requires that consumers be equipped with the knowledge and skills to evaluate the options and identify those that best suit their needs and circumstances. This is especially true for populations that have traditionally been underserved by our financial system. Financial education is also essential to help consumers understand how to prevent becoming involved in transactions that are financially destructive. Several broad categories of financial literacy activities can help potential bank customers participate in the U.S. financial system and help banks strengthen their communities: Basic financial services and asset building programs provide a working knowledge of financial products, financial planning, and an overview of the U. S. banking system. Credit management and repair programs enable individuals to correct and learn from previous financial mistakes. Homeownership counseling prepares individuals for what is often the largest single investment in a lifetime. Education aimed at recognizing and avoiding abusive lending practices can protect individuals at risk of obtaining inappropriate loan products. Small business and microenterprise technical assistance provides entrepreneurs with practical business knowledge.

What are the benefits of financial literacy programs?

Assists residents of lower-income neighborhoods build wealth and participate in the American financial system. Enhances a bank’s visibility in the communities it serves and contributes to a larger customer base. Increases access to depository institutions by educating consumers about available products and services. Enables consumers to make better-informed choices in the financial marketplace. Participation in these programs may receive consideration under the Community Reinvestment Act (CRA). Bank participation in financial literacy programs may receive consideration under the Community Reinvestment Act.

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